The recently concluded summit of the five member states of the BRICS (Brazil, Russia, India, China and South Africa) agreed to expand membership to include from next January Saudi Arabia, Iran, Argentina, Egypt, Ethiopia, and the UAE. Western media and commentators’ responses have been a farrago of sneering at the unlikely hodgepodge of countries that will now be members, raising the spectre that this group is setting itself up in opposition to the G7, and is an anti-West alliance of Global South members.
Of the BRICS five, only China and Russia seek to challenge the influence and authority of the US-led liberal West. Of the new members accepted at the Johannesburg meeting, only Iran stands against the West. The majority of the original five member countries are democracies and a minority autocracies. With the addition of new members, democracies will now be in a minority within the group, while Egypt is a US-sponsored military dictatorship.
In a time of global geopolitical competition, all the democratic members of the BRICS maintain good working relations with Washington, even while resisting US demands to do more to push back against the autocracies. Some of the future non-democratic members also maintain close relations with Washington. What then is the cement that binds the BRICS together?
When Jim O’Neil of Goldman Sachs first used the term BRIC in a 2001 research report, it applied to a group of emerging economies that were then presenting themselves as a distinct, high-growth, part of the global economy. South Africa joined in 2010 and so the ‘S” was added. BRICS members were identified as relatively high growth economies compared with the G7 at the time. Consequently, they were attracting strong inflows of capital which in turn were supporting higher rates of economic growth.
The BRICS Five account for 40 per cent of world population and 26 percent of global GDP measured at purchasing power parity (PPP). With the new members, the BRICS Eleven will account for 46 per cent of world population and 30 percent of global GDP. The G7 account for 10 percent of world population and 27 percent of world GDP.
In 2012, at the fourth BRICS summit in New Delhi, it was agreed that the group would be given form and institutional structure with the creation of the BRICS Bank, later renamed the New Development Bank (NDB). This was then given substance in February 2016 with the establishment of the NDB, headquartered in Shanghai, with an initial capital of $US100 billion. At present, UAE, Uruguay, and Bangladesh are non-BRIC members of the NDB. The new members of the BRICS will automatically join next January as part of their accession to the BRICS.
Like the Asia Infrastructure Investment Bank (AIIB), the emergence and expansion of the BRICS stems from the same dissatisfaction with the Bretton Woods institutions dominated by the G7. China’s economic ascendency would always have put strains on existing international financial arrangements. Naturally, they represent the interests of the founding members and their relative economic weight at their time of formation. They have proved obdurate in the face of China’s rise. While the Bretton Woods institutions have been unable or unwilling to accommodate the big shifts in global economic weight of the past thirty years, other countries, mainly led by China, have sought alternative institutions for managing the global economy.
Only China has had the economic heft in the global economy to set about restructuring the international financial order by creating new institutional arrangements that better reflect the shift of economic power from the G7 to the Global South. China is not radically upending the international economic order. Path dependency makes this hard to do. The snail’s pace at which the world’s biggest trading economy can increase the share of international payments settlements in RMB highlights the inherent inertia in the system. It is incremental, but the direction of change is clear. Adding new members will see a bigger share of payments conducted in RMB, but still the share of the total will remain small for a long time.
The significance first in the establishment of the BRICS and then its expansion in Johannesburg is that it is part of a suite of international institutional arrangements with China as the driving force. China has demonstrated over and again creative institutional entrepreneurship to change the US-led international order. Moreover, until recently, it has done this largely under the nose of the West which has generally sought to ignore or downplay these developments.
In 1997, in the wake of the collapse of the Soviet Union and emergence of newly independent states in Central Asia for the first time, a meeting of Russia and three Stans (Kazakhstan, Kyrgyzstan, and Tajikistan) was convened in Shanghai. Out this the Shanghai Five Group was formed which was initially focussed on arms control along China’s land frontiers and counter-terrorism measures. In 2003, Uzbekistan was added to the group. It became the Shanghai Cooperation Organisation (SCO). In addition, to arms control and counter-terrorism, joint military exercises were added, as were new members over the years. India and Pakistan are two of the more recent additions.
Then in August 2013, in Astana in Kazakhstan, Xi Jinping announced the Belt and Road Initiative (first called One Belt, One Road). At first confusion reigned over what this was supposed to mean. A herd started to slap Belt and Road labels on every Chinese foreign policy initiative. it spread like spilt ink across the map of the world. Its origin, however, long predates Xi’s Astana speech. Its genesis lay in China’s elevated strategic vulnerability to sea-borne imported crude oil and resources which were and remain vulnerable in the face of US naval preponderance.
From the early years of this century, as China’s dependence on foreign markets to supply much of the energy and raw materials needed to sustain its economic growth began to grow rapidly, Beijing began looking for alternative sources of supply and land-based transport routes. The BRI was borne out of strategic imperative, an acute sense of vulnerability, and deep mistrust of the West. With time, the BRI acquired characteristics of an international organisation, with a wide variety of committees and sub-committees chaired by different national participants, not only China. Some existing multinational institutions, such as WIPO, also participate in BRI forums.
With these three main institutional pillars – BRICS, AIIB, BRI – Beijing has given structure and definition to an order that stands apart from the US-led liberal order. Commentators, such as C. Raja Mohan, in a recent issue of Foreign Policy, seek to dismiss the BRICS following the Johannesburg summit as being a rag-tag collection of countries that so lacks coherence that it will not be able to function as a ‘bloc’, or that it will amount to no more than a non-aligned talk shop. These dismissive analogies, however, are straw men.
In today’s world system, ‘blocs’ like those of the Cold War are neither sought nor are they feasible. The fact that the newly expanded BRICS is so heterogenous in ideology and alignment to the US or to China demonstrates that. Nor is the BRICS group a mere ‘talking shop’. It has solid institutional structure with the NDB and an existing loan portfolio.
Significantly, and supported by the Bank, BRICS members have agreed to pursue de-dollarisation of an increasing share of their foreign exchange settlements. Most members already conduct a portion of their trade in RMB. This will only expand over time. But this is not just confined to the BRICS. For example, the big iron ore exporters from Australia – BHP, Rio Tinto, and Fortescue – each conduct part of their trade with China in RMB. It of course makes perfect sense because China is the main supplier of much of their equipment.
What the Johannesburg meeting of the BRICS has reinforced is that the international, newly emerged, multipolar system, is also bifurcating into two orders: one around the US-led West and one around China. These are not Cold War like blocs, but alignments of states around respective poles that reflect certain values, and foreign and economic policy orderings. Johannesburg has clearly reinforced these trends in shaping the new world order.